What are the prospeccts of Jyothy Laboratories Ltd.?
Jyothy Laboratories (JLL) is an FMCG company with presence in fabric care, household insecticides, surface cleaning, personal care and air care segments.
In a strategic move, JLL acquired 83.7 per cent stake in Henkel in August 2011. The management is now planning various turnaround strategies for Henkel and the synergy between the two is expected to result in substantial growth in revenue and operating margin. However, in the hindsight, if things go haywire, JLL could face a serious risk. JLL's another big concern rests with raw-materials as it does not have any long-term supply contracts with its suppliers. Further, high density polyethylene (HDPE), which is a derivative of crude oil constitutes the largest raw material expenditure of JLL.
With skimpy debts of `74.3 crore on its books, JLL's price-to-earnings (PE) ratio is trading very close to its historic (nearly 4.3 years) median PE of 17.25. Since its listing in December 2007, the stock has not seen a significant run-up (only 4.2 per cent till date), with a maximum close of `316.9 and minimum close of `43.6 historically. Based on earnings per share growth of just 9.2 per cent over FY07-11, the stock unattractively trades at a price-to-earnings to growth (PEG) ratio of around 2. The stock looks unattractive due to its high valuations and low returns since listing. Avoid the stock currently.
This article was originally published on May 16, 2012.
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